What Leads People to Tolerate Negative Interest Rates on Their Savings?

Abstract

Using an online experiment, we examine to what extent people are ready to bear negative interest rates (NIR hereafter) on their savings. We find some tolerance to NIR, i.e. people being willing to let money in the bank, rather than spend it, and thereby accepting to have less at some later time than now. This tolerance strongly depends on the amount of savings, time horizon, individual savings behavior, and anchoring. Specifically, the higher the amount, the lower the tolerance to NIR, which is consistent with a reverse magnitude effect. As time horizon increases, the tolerance to NIR decreases. Regular savers are more likely to tolerate NIR than non-regular savers, which is consistent with the status quo bias. We also find a higher tolerance to NIR on savings when participants are anchored towards NIR on savings first, i.e. when participants are presented first with NIR and then with positive interest rates (PIR hereafter).

Keywords: Negative interest rates; savings account

JEL Classification: G11, G21, G40, G41, G51, G53